SMALL BUSINESS FINANCE - FINANCIAL MARKETS

Please find attached file.
Provide 3 files (word, PP, and Excel)

FIN 421: SMALL BUSINESS FINANCE

Wight: 30 Marks

Outcome:

1. Word Report (5 pages).
2. Excel Sheet.
3. Presintation (10 minutes).

Case Study:Kcoffee

LBO Model Test Instructions

A private equity firm is considering the leveraged buyout of , KCoffee a privately-owned coffee

company. In the last twelve months (“LTM”), KCoffee generated $2bn in revenue and $150

mm in EBITDA. If acquired, the PE firm believes Kcoffee’s revenue can continue to grow

15% YoY while its EBITDA margin remains constant.

To fund this transaction, the PE firm was able to obtain 4.0x EBITDA in Term Loan B (“TLB”)

financing – which will come with a seven-year maturity, 5% mandatory amortization, and

priced at LIBOR + 500 with a 2% floor. Packaged alongside the TLB is a $50m m revolving

credit facility (“revolver”) priced at LIBOR + 500 with an unused commitment fee of 0.25%.

For the last debt instrument used, the PE firm raised 2.0x in Senior Notes that carries a seven-

year maturity and an 8.5% coupon rate. The financing fees were 2% for each tranche while the

total transaction fees incurred were $15 mm.

On KCoffee’s balance sheet, there is $300mm of existing debt and $50mm in cash, of which

$30mm is considered excess cash. The business will be delivered to the buyer on a “cas h-free,

debt-free basis”, which means the seller is responsible for extinguishing the debt and keeps all

the excess cash. The remaining $20mm in cash will come over in the sale, as this is cash that

the parties determined is required to keep the business o perating smoothly.

Assume for each year that KCoffee’s depreciation & amortization expense (“D&A”) will be

5% of revenue, capital expenditures (“Capex”) requirement will be 2% of revenue, the change

in net working capital (“NWC”) will be 1% of revenue, and the tax rate will be 35%.

If the PE firm were to purchase KCoffee at 10.0x LTM EV/EBITDA on 12/31/2021 and then

exit at the exact LTM multiple after a five-year time horizon, what would the implied IRR and

cash-on-cash return of the investment be?

Resources:

Please follow the case study on the following date.

Basic LBO Model Test

Deadlines:

Presentation: 24/5/2022.

Word report and Excel Sheet: 31/5/2022 (Before the exam time).

Good Luck,

Basic LBO Model Test

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SMALL BUSINESS FINANCE – FINANCIAL MARKETS